On Monday, Trump revisited a proposal from 2018 that did not come to fruition: the idea of changing SEC reporting for public companies from quarterly to semi-annually. His reasoning was somewhat insulting, suggesting that since Chinese companies have longer time horizons, this shift would combat short-termism in US companies. If Trump’s true aim was to encourage companies to focus on the substance of their businesses, he should instead address the issue of share buybacks, a practice often tied to price manipulation. The Financial Times has also noted various ways Trump is enhancing the advantages of CEOs over investors.
This issue is significant not just because Trump is planning to empower one of his key constituencies—CEOs—by further diluting accountability within the already weak U.S. shareholder framework. It’s also a move that undermines a crucial aspect of what has historically given the U.S. a competitive edge. Strong investor protections have positioned the U.S. capital markets as the cleanest and safest in the world. This framework has attracted capital under favorable conditions and provided opportunities for smaller or less-connected investors to participate. Eroding this regulatory structure echoes Trump’s broader ideological assault on institutions, limiting transparency and accountability.
While large investors might not feel the brunt of Trump’s initiatives as severely, since they often procure private information, smaller funds, retail investors, and foreign investors could face significant disadvantages.
Moreover, it’s essential to challenge some prevailing misconceptions about “shareholder capitalism.” Corporate boards do not owe a duty solely to shareholders; rather, they have responsibilities to the corporation as a whole, among which shareholders are merely one stakeholder group. Equity, in this context, represents a residual claim—essentially the last to be addressed. The idea of “maximizing shareholder value” has been touted by economists like Milton Friedman and Harvard Business School professor Michael Jensen, yet is fundamentally flawed.
The reality for investors in public companies is that their rights are remarkably limited. Share ownership grants only a single vote that can easily be diluted and the conditional right to receive dividends when the company feels inclined to distribute them. Even with the disclosure requirements that Trump perceives as excessive, shareholders remain uninformed about many details that could enhance their decision-making, as highlighted by Amar Bhide in the Harvard Business Review.
Bhide’s initial observations underscore the strength and enforcement of U.S. investor protections:
U.S. rules protecting investors are the most comprehensive and well enforced in the world…. Prior to the 1930s, the traditional response to panics had been to let investors bear the consequences…… The new legislation was based on a different premise: the acts [the Securities Act of 1933 and the Securities Exchange Act of 1934] sought to protect investors before they incurred losses.
He elaborated on the necessity for extensive regulations to facilitate trading in equities, which are inherently ambiguous. Historically, equity investors enjoyed close relationships with business owners and managers, enabling them to gauge character and have a clear understanding of company performance and strategies. In stark contrast, equity investors today often remain detached from the companies they invest in, lacking access to sensitive information and facing challenges in holding underperforming managers accountable, often opting instead to sell their shares and depart.
Bhide’s concerns are not merely hypothetical. The short-term focus of executives in public companies, coupled with their tendency to compensate themselves excessively without regard for actual results, has led to underinvestment in their businesses. This, in turn, emphasizes cost-cutting measures, including workforce reductions. Many small business owners and entrepreneurs adopt a fundamentally different approach, tending to prioritize employee retention and maintaining salaries, even at a detriment to their financial rewards. Stagnating worker wages and underemployment are often consequences of companies not sharing productivity gains with employees, an issue exacerbated by attempts to fix governance problems through performance-linked executive pay, which has failed to address the underlying issues and resulted in new complications.
Therefore, Trump’s proposed changes aim to further tilt an already executive-friendly regime toward even more leniency.
Let’s examine the most talked-about initiative: moving from quarterly to semi-annual reporting. From CNBC:
Trump first introduced the idea in a Truth Social post, asserting it is “subject to SEC approval” and would “save money and allow managers to focus on properly running their companies.”
“Did you ever hear the statement that, ‘China has a 50 to 100 year view on management of a company, whereas we run our companies on a quarterly basis??? Not good!!!’” Trump remarked….
Proponents of the current quarterly reporting system argue that it provides timely insights and transparency regarding public companies. “When you weigh this out and put it on a whiteboard, the pros of quarterly reporting outweigh the cons,” said Art Hogan, chief market strategist at B. Riley Wealth Management. “Having to wait six months for official results would cause more difficulties than benefits.”
Even though executives face criticism for sometimes presenting misleading earnings, adherence to generally accepted accounting principles (GAAP) contributes to ensuring standardization and reliability in reporting. For this reason, U.S. reporting practices are viewed as among the most transparent globally.
Despite Trump’s commentary about China, it’s noteworthy that Chinese companies face similar if not stricter reporting obligations, including quarterly earnings reports alongside semiannual and annual filings.
Trump holds the votes at the SEC to fulfill his agenda, although implementation might take time. Axios suggests there will be enough pushback for companies to continue quarterly disclosures:
Investors “have come to expect quarterly reporting and will exert pressure on companies to continue providing quarterly reporting,” wrote Erik Gerding, former director of corporate finance at the SEC, to Axios.
This may appear overly optimistic, but the future remains uncertain.
Now, regarding the Financial Times coverage on Trump’s broader agendas to benefit American executives:
Even before Trump’s latest call to eliminate quarterly earnings statements, his administration was shifting the balance of power from shareholders to corporate leaders. Last week, the Securities and Exchange Commission announced it would explore methods for companies to limit the risk of shareholder lawsuits, potentially allowing disputes to be resolved privately instead of in the public courts.
These actions, part of Trump’s overarching agenda to reduce regulations, may decrease transparency and undermine the advantages that have historically attracted investors to the U.S. capital markets, according to some shareholder advocates.
John Coffee, a professor at Columbia Law School, noted: “The U.S. has long been known for its lower cost of capital, which I believe is attributable to its higher level of transparency and shareholders’ access to legal remedies.”
And that’s not all:
This Wednesday, the SEC will deliberate on whether to permit companies to go public with articles of incorporation that include mandatory arbitration clauses for securities law claims, potentially moving disputes away from the courtroom.
The SEC also revealed a “unified agenda of regulatory and deregulatory actions” it intends to pursue, which includes rule reforms concerning shareholder proposals to “reduce compliance burdens” for companies and “rationalize disclosure practices.”
Amanda Fischer, policy director at Better Markets, remarked: “Decades of shareholder rights are under threat due to multifaceted legal and regulatory assaults driven by corporate management and their supporters in the White House and at the SEC.” …
“It’s fair to criticize investors for their short-termism,” stated Carson Block, head of Muddy Waters, a notable short seller. “However, reducing reporting frequency diminishes transparency regardless of the context.”
He underscored that this shift would particularly disadvantage smaller investors, as larger firms possess extensive access to alternative data, such as credit card transaction information, giving them an even greater edge in a semi-annual reporting landscape.
Jeff Mahoney, general counsel at the Council of Institutional Investors, emphasized that “the requirement to file quarterly financial reports is a key element of the timely and accurate information that upholds the quality and efficiency of U.S. capital markets.”
Many expressed skepticism in the Financial Times about these developments. Here are a few notable comments:
joining the dots
Make America Emerging Market Again!Monte Video
Less reporting? What could possibly go wrong?NewWorld819
The regulations we have in market economies have all, more or less, arisen out of a catastrophe or crisis. They exist to prevent a recurrence of those events. Deregulate, and guess what happens….Xavier
Another nail in the coffin of the market economy and a golden opportunity for corruption.
Unfortunately, corruption appears to be a persistent feature of Trump’s America.
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1 From Lynn Stout in Yale Insights:
Shareholders do not own corporations; rather, corporations are legal entities that exist independently. This distinction is crucial for their roles in aggregating specific investments. If shareholders owned corporations, they would be able to withdraw those investments unilaterally. Similarly, Milton Friedman’s assertion that corporations should be run primarily to maximize shareholder profits is not legally grounded. The doctrine known as the Business Judgment Rule states that directors of public corporations are not obligated to prioritize profit maximization.
